from the good-for-innovation dept

Last June, Elon Musk and Tesla made some news in freeing up Tesla's patents, hoping to jumpstart the market for electric cars. As we pointed out at the time, this highlighted how patents can, and often do, hold back innovation -- and we hoped that others might take notice. It's taken a while, but at CES this week, Toyota also announced plans to free patents, focusing on the 5,680 patents (including pending patents) it has on fuel cell drive systems. The details still matter, but Toyota says that the patents are all available, "royalty free." The patents seem to cover the whole stack of things necessary to develop hydrogen fuel cell cars -- including the patents for hydrogen stations.

Of course, the idea, as with Tesla, is that the market needs to be jumpstarted, and that means a lot of companies working together to help build the infrastructure and educate the market. That's done best by sharing the information and letting everyone compete on the actual execution. But, of course, that's what we've been arguing should be the case for lots of technology areas as well. The patents are only serving to hold back so many markets, not allowing companies to build the best possible products they can, and thus limiting overall innovation and adoption.

Hopefully more companies -- and not just automakers -- will start to recognize why this is such a good idea, not just for their own business, but for innovation in general.

from the letting-innovation-fly-away dept

Drones are leaving the U.S. for greener pastures, according to several media outlets (e.g., WSJ and Bloomberg). In response to slow-moving U.S. domestic policy on commercial drone use, innovators are moving abroad, to jurisdictions where regulations have been updated to delineate when drones may be used in the commercial context. (Keep in mind, we are not talking about fixed wing Predator drones with Hellfire missiles, but aircraft that are already available commercially with much of the same technology already incorporated into our mobile phones.) Besides smaller companies actually moving abroad to places where they can sell their wares, even the likes of Google and Amazon have moved their drone testing to Australia and India, respectively.

Making matters worse, export control policies are poorly targeted, and prevent some drones made with widely available technology built in the United States from being sold overseas. In fact, according to the Wall Street Journal, 3D Robotics — a San Diego-based company that specializes in drones with video capability — was only allowed to resume selling some of its products in a number of countries because the drones were manufactured in Mexico:

Export rules prompted 3D Robotics to temporarily halt shipments to 44 countries this spring. It has since secured a new classification from the U.S. Commerce Department, in part because it manufactures its drones in Mexico, allowing it to resume foreign sales.

And for those inclined to view this as a minor development in a niche market, at least one study predicts that allowing commercial drone use in the United States could create 100,000 new jobs and $82 billion in economic impact over the course of the next decade.

A lot of smart people have already said a lot of smart things about the drone situation, so I won't delve too deeply into the nuances of streamlining commercial drone policy making. Clearly, there are good reasons why commercial drones can't take to the sky without some rules, but it is imperative that regulators move efficiently to establish a framework where, for example, a real estate agent or a surveyor can survey a property with a drone (in the same way it is currently legal for a non-commercial user to fly an off-the-shelf drone in her backyard). That is not happening now. According to the Department of Transportation's own Inspector General, the FAA is likely to miss its Congressionally mandated deadline in coming up with rules that allow for the expansion of commercial drone use.

There's a general point here worth expanding on: even if a country does everything right, creating a fertile environment for research, investment, and innovation (aka the hard stuff), innovation will nevertheless move overseas if outdated regulations impede the lawful sale or use of a product or service. It does not matter if the United States has the brightest minds, best expertise and easiest access to venture capital; if you can't sell, test or export drones here, then we will see those jobs and that talent go overseas to more fertile ground. In fact, this is already happening. And even if the FAA eventually comes up with a workable set of regulations that allow commercial drone activity, in fast moving industries — where first mover advantage is enormous — bureaucratic delays can be terminal.

Take Japan in the 1990s. Japan was a high-tech giant. In the early 1990s, both the U.S. and Japan had companies interested in innovating in online search engines. However, Japan's highly restrictive set of copyright laws meant that in order to index a website you had to get the website owner's permission first. When there are a couple hundred or a couple thousand websites, this is feasible. But clearly, this does not scale. Fortunately for U.S. innovators, the U.S. had copyright "fair use" enshrined into law, which allowed transformative uses of copyrighted content. This paved the way for U.S. search engine entrepreneurs, while the Japanese search sector never got off the ground. Even though Japan eventually updated its copyright law to make search engines legal (in 2007!), it was too late. As of today, U.S. search providers (Yahoo Japan and Google) have well over 90% of the Japanese search market.

The "crypto wars" of the 1990s are also a place to look for a parallel to the drone fight. Until 1992, the U.S. government imposed very strict export controls on cryptography. Although the export of strong encryption technology was viewed by many in the law enforcement and national security communities as detrimental to their missions, the rise of electronic commerce greatly increased the need for robust encryption in commercial products and Internet services. What followed was a long drawn out battle in which encryption proponents focused on several key arguments, including the logistical problems with trying to prevent the export of programming concepts, the widespread availability of cryptography internationally and free speech concerns. Another angle, which tied in with the ease of moving cryptographical research overseas, was that innovation in the U.S. would be harmed as much software engineering would be forced to move overseas in order to get around the onerous U.S. restrictions — restrictions that would have little actual effect on the worldwide availability of cryptography. Jon Peha, a professor at Carnegie Mellon who would later go on to be the Assistant Director of the White House's Office of Science and Technology policy, outlined some of the competitiveness concerns in a paper he wrote on encryption policy in 1998:

Industry critics argued that the restrictions accomplished little, since 128 bit encryption without key escrow is already readily available outside the US. An April 1998 report from the Economic Strategy Institute concluded that the policies imposed at that time (i.e. the 1996 interim policy) would cost the US economy between 35 and 96 billion dollars between 1998 and 2002. Some US companies have overcome these limitations by purchasing foreign products or shifting development activities overseas. For example, in March 1998, Network Associates announced that it would begin contracting all encryption development to a Swiss company.

By 2000, U.S. restrictions were sufficiently relaxed and the sale of software with encryption technology in it was made significantly easier. However, in certain situations export controls still apply, and the process for complying with them is still relatively byzantine. (And, with the recent NSA scandal and the fallout, we might be heading towards the Crypto Wars II.) To this day, there is still significant discussion on how the remaining export controls affect national competitiveness. (See European Commission Document on Export Controls, page 7.)

Churning out smart engineers and cultivating venture capital is not enough to succeed in a competitive globalized world. Policy bandwidth needs to be devoted to clearing unnecessary hurdles to commercializing and exporting the fruits of that innovation. Although Europe's "innovation policy" is lagging the U.S., countries like Germany are ascending to the lead in drone innovation because people can actually use drones commercially and export them to other countries. If a company cannot achieve the sales base necessary to scale their business, then they cannot continue to innovate.

Going forward, we should not just think of the other domestic policy fights in a vacuum. Take Tesla, for example. They are succeeding in producing commercially attractive electric vehicles where so many other companies have failed: a public policy and economic triumph that has been nearly universally lauded. Yet, they face sales bans or restrictions in over half of the states in the U.S based on a set of outdated and widely criticized auto dealer regulations. As the company continues to scale, and as foreign markets grow and more consumers worldwide fall into the crosshairs of Tesla's salespeople, an unnecessarily restrained domestic market will only force the company to locate more infrastructure and talent overseas than they otherwise would in the first place.

In the Tesla and drone cases, we got the hard stuff right. The United States fostered an innovative and dynamic economy that unleashed a wave on entrepreneurship and innovation. Now, much like the situation in immigration policy where we are pushing some of our best and brightest minds overseas, slow moving regulators and policymakers are forcing some of our nation's most dynamic companies overseas as well.

from the rather-than-regulating-them-out-of-existence dept

What's the secret behind the most successful tech startups? No, it's not having founders with perfect SAT scores or sealing a dozen coders in a room with cases of Red Bull. The answer often has more to do with refining and capitalizing on an established idea, than with conjuring up something new out of thin air. Or, as Isaac Newton quipped in 1676, "Success is standing on the shoulders of giants."

More than a dozen search engines were already online by the time Google's Sergey Brin and Larry Page debuted their hypertextual search algorithm, redefining the browser landscape. Netflix reimagined the DVD rental market – and upended an entrenched business with disruptive technology – by cutting out the brick-and-mortar rental barrier. And Pandora found a way to let listeners customize their own radio stations, with or without advertisements, while still paying artists royalties to play their music.

So why, in a culture that praises disruptive technology and innovation, do policymakers keep looking for ways to regulate promising new startups into oblivion?

Over time, incumbent business models build protectionist walls to help stave off competition – walls like regulatory hurdles that new competitive businesses have to clear before they can operate. We see this tension at play today as a number of innovative startups run into protectionist barriers supported by industry giants. Uber, for example, is fighting through one roadblock after another from the taxicab industry as the company struggles to gain market share in new cities. And as Airbnb offers travelers new options when they're on the road, it's in the crosshairs of city regulators and hotel lobbyists across the country.

When the costs of regulatory policies are diffused and the benefits are concentrated, the interests of the incumbents often begin to stray from the interests of consumers. Consider the 1984 Sony Betamax Supreme Court case, which pitted the behemoth movie industry against the emerging video recording device market. In that case, the court ruled that time shifting did not infringe on copyright law, and today the thriving home movie market rivals the box office, ultimately giving us more options for our Saturday night entertainment.

Often, benefactors have strong incentives to support protectionist policies, so they push for both greater regulation and enforcement. They seek to exclude new business approaches even when they provide consumers benefits like lower prices and more options. Just look at how TV broadcasters reacted to streaming-TV service Aereo – entangling the innovative startup in a lengthy legal battle that also made its way to the Supreme Court. Ruling in favor of the broadcasters, the court's decision ultimately hurts consumers, providing them with fewer choices for pay-TV service.

How do industry mainstays fair in highly-regulated economies? You don't need to be an economist to predict what happens next. Research suggests businesses of all sizes operating in strictly-regulated environments are often less productive. A report published this year by the Mercatus Center found over a four year period the most regulated industries experienced 33 percent growth in output per person, and a 20 percent increase in unit labor costs. Does that sounds like good growth to you? Before you answer, consider that over the same period the least regulated industries experienced 63 percent growth in output per person and a four percent decline in unit labor costs – yes, the cost of labor dropped with less regulation – which almost always translates into lower prices for consumers.

Any time new businesses pose even a perceived threat to the current profitability of existing incumbents there is a strong urge to sweep these new businesses into the existing regulatory framework, often at the expense of consumers' best interests. But it's time for legacy businesses to stand up for themselves and look for ways to adapt and innovate, rather than cower behind over-regulation. A closer look at disruptive innovation over the last decade reveals a strong tradition of industries cropping up next to preexisting industries and bolstering the overall market – for industry vets and startups alike.

There are dozens of examples of how industries have figured out how to pivot and adapt in order to compete with emerging technologies. Look at Makerbot's 3D printer, which is disrupting traditional manufacturing while providing innovative solutions for producing items that are otherwise hard to get. In response, traditional manufacturers are finding ways to incorporate 3D printing technology into their own practices for product development and testing. Apple's iPod changed the way we listen to and buy music, breathing new life into an industry plagued by piracy. And Amazon's Kindle has changed the book publishing industry by revolutionizing the way content is brought to consumers.

If the research holds, these markets – when not hindered by large regulatory burdens – should show strong productivity gains and broadly benefit consumers. Technology can be used to make markets more efficient by getting products into the hands of those who will use them the most and gain the most from their use. In other words, it helps balance otherwise lopsided markets, where suppliers and buyers weren't matching for any number of reasons.

The most successful startups haven't stumbled upon an entirely new service offering – they've simply found a better way to do something that's already being done. Rather than fighting a tsunami of change and potentially drowning the disruptors that strive to improve consumer choice, incumbent businesses should find ways co-opt technological solutions and in turn produce change themselves.

Shawn DuBravac is the chief economist of the Consumer Electronics Association (CEA), the U.S. trade association representing more than 2,000 consumer electronics companies. Follow him at @Twoopinions.

from the rant-on! dept

Earlier this week, we wrote about rumors that Elon Musk was going to free up some of Tesla's patents to encourage more people to adopt the company's Supercharger system. As we noted this shouldn't be controversial, but it was still considered as such. Elon Musk has now made the official announcement and it actually goes way beyond what was originally rumored. It's not just about the Superchargers, it's all of Tesla's patents. But, better than that, Musk explains why he no longer thinks patents make sense and even demolishes the one argument that even many patent skeptics make: that they're "still needed to stop big companies from copying your innovations."

As we've explained in the past big companies almost never recognize truly disruptive innovation when it happens. This is for a variety of reasons, including the basic innovator's dilemma, but also just because companies are so focused on their own things, it's tough to get them to realize outside innovation. Furthermore, even when they do copy, it's actually pretty rare for them to get it right. That's because, from the outside, they only copy the superficial stuff, and have no idea why something is really successful. And thus, even if they have the "exact plans" for the competitor's technology or process, they don't understand the little things that make customers love them. Similarly, innovators are constantly innovating, so by the time the copycat catches up, they're still behind.

But, an even bigger issue, as we explained before, is that having more viable competitors can also enlarge the overall market. So if a company like Tesla has no viable competitors, they're left educating the market and building all the infrastructure themselves -- and that's pure cost. Opening up their patents actually helps Tesla in the long run by (hopefully) spreading out some of those costs, and increasing the size of the overall market. This is what many patent system supporters just don't get -- but Musk clearly understands deeply.

He talks about how he used to be a patent system believer, but he's been converted in the other direction. And while he avoided patents at some of his companies, with Tesla he was convinced they were necessary, because "the big car companies" might just copy everything he's done. Now, he says, he knows that's not true, and he actually would prefer they do copy Tesla's work.

At Tesla, however, we felt compelled to create patents out of concern that the big car companies would copy our technology and then use their massive manufacturing, sales and marketing power to overwhelm Tesla. We couldn’t have been more wrong. The unfortunate reality is the opposite: electric car programs (or programs for any vehicle that doesn’t burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales.

At best, the large automakers are producing electric cars with limited range in limited volume. Some produce no zero emission cars at all.

Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. By the same token, it means the market is enormous. Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.

We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform.

This is absolutely true and it's great to see it stated so directly. If only other companies were willing to do so. As for the actual way this will work, Tesla has announced that it "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." That's not entirely putting the work into the public domain, but it's a good step. Years ago, I had hopes that Google and others would do something similar, but it has not come to pass. Google had made a similar pledge, but only for open source projects, and Twitter has basically given its own engineers the ability to veto any offensive patent litigation efforts by issuing their own license. But Tesla has now gone even further than both of them by basically telling any competitor to feel free to make use of its patents without worrying about getting sued.

Unlike so many other companies and company leaders, Musk appears to recognize the simple fact that innovation is not in how many patents you get, it's in how you actually build amazing products and services that people want -- and patents can often get in the way of that, rather than help it. It's nice to see him declare that so directly. He even took the symbolic gesture of removing the framed patents from Tesla's lobby wall. This is great to see and hopefully it will inspire others in the tech industry to put down similar stakes as well.

from the innovators-vs.-litigators dept

Struggling also-ran Canadian maker of mobile phones, Blackberry (formerly, RIM), has quite a long history with patents. A decade ago, RIM actually was extremely aggressive in suing other companies for patent infringement. In fact, it can be reasonably argued that this was actually the beginning of the company's downfall. RIM had a somewhat dominant position in the early part of the 2000s, and then started suing pretty much every competitor (and lots of non-competitors) for patent infringement. In turn, that resulted in a bunch of other companies suing RIM, including the infamous case of the patent troll NTP, who eventually got $612.5 million out of RIM after a tremendously high-profile, years-long lawsuit that brought patent trolling to the attention of both the public and lawmakers. Of course, the guys behind NTP have admitted they only sued RIM after reading about its aggressive patent strategy first. But, more importantly, it seems clear that the aggressive lawsuits, both inbound and outbound, resulted in the company taking its eyes off the innovation ball, allowing basically everyone else to leapfrog way past it.

As the company has been basically falling apart, we've fully expected it to go full on patent troll. After all, that's pretty much what you expect of legacy companies who've lost in the marketplace and can no longer figure out how to innovate. Instead, they basically start to litigate against anyone and everyone -- and RIM/Blackberry already has that sort of trait in its DNA anyway.

So it's little surprise to hear that the company has launched a silly lawsuit against Typo Products, a company formed (of all things) by TV personality Ryan Seacrest and others, creating a physical keyboard that can attach to the iPhone 5. Blackberry claims the company "blatantly copied Blackberry's keyboard." But, it's a keyboard. There are only so many ways you can make it, and honestly, if Blackberry wasn't so focused on lawsuits all these years, perhaps it could have realized years ago that maybe it should have been making physical keyboards for the smartphones that the public actually seemed to want.

But here's the thing that I find most fascinating about this: it's a reminder of just how quickly and completely a "dominant" tech firm can almost disappear off the face of the earth. Go back to 2007 (also known as The Time Before The iPhone) and Nokia absolutely and totally dominated the mobile phone market. In fact, I remember making a joke around 2005 or so mocking another company for suggesting that it could pass Nokia in the market (I can't remember which company, but it may have been Samsung) and a telco analyst much wiser than myself scolded me, reminding me how quickly the market can change -- and he was totally correct. Two quick images tell the story. The first, put together by the Guardian using Gartner data, shows how Nokia (via Symbian) basically owned the smartphone market for quite some time. And then its lead disappeared:

Or, if you look at it from a profit share realm by vendor, as Asymco did last year, you get an even more dramatic story, where Nokia's ability to profit from mobile phones went away.

Even its overall lead in selling all kinds of phones (going beyond the smartphones and into cheaper phones around the globe, a market that it absolutely dominated) was lost a bit ago to Samsung. Just a few weeks ago, Mobile Unlocked put together an astounding interactive chart showing overall mobile phone sales quarter by quarter going way back. This static image below doesn't do it justice. Check out the full thing:

No matter how you slice the data, it's undeniable that Nokia absolutely and totally dominated the market. Plenty of people (as noted, myself included) thought that lead was more or less insurmountable. While many may argue otherwise today, at the time it was very, very difficult (unless you were that prescient analyst I talked to) to envision a world in which there was such a major market shift that would take Nokia off its game so totally. And then, along came the iPhone. And Android. And the world changed. And Nokia clearly wasn't ready for it, didn't recognize where the world was heading and was unable to respond in a timely fashion. It tried to shift much later in the game, but it was way, way, way too late.

In fact, it could be argued that its own success was part of the problem. Nokia was heavily invested in Symbian and had committed to following that path. This is actually something that's not uncommon with dominant players. In some ways, they're a victim of being there first. When a disruptive innovation comes along, they can't shift on a dime, and the innovations effectively leapfrog right over them. Yes, you can ride out cash cows for a long time -- and Nokia has done so (as, it appears, has Microsoft...) but eventually the music stops.

I bring this up because we seem to go through this quite often -- with people fretting about certain "dominant" tech firms, and how something has to be done to stop them or they'll have too much power. But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.

from the winning dept

One thing game developers have always had, and will always have, to deal with is the dreaded copycat clone. It's something of a success indicator when you create something entertaining enough to breed like products. As they say, imitation is the sincerest form of flattery. Or, instead of being flattered, you can go the Zynga route and sue folks using IP laws rather than compete with them directly. Or, if one were so inclined, one could take a page out of the Namco playbook and threaten a kid for making a Pacman clone. Defenders of these actions will claim that they're necessary. After all, a great amount of work and development went into those games and it seems unfair for a copycat to come along, use similar designs, and reap the benefits. How could the original creator compete with that?

Here to show us how the original creator could compete with that is Rami Ismail, developer of Ridiculous Fishing, who was just a tad late to the iOS market compared with copycat Ninja Fishing. Instead of going legal, or even crying foul, however, Ismail just concentrated on making his game freaking awesome.

"When we released the game, we promised people that for $2.99 (£1.79) they would get Ridiculous Fishing without any further in-app purchases or anything," he told Digital Spy at PC and indie games expo Rezzed.

"We're going to keep our word, but we want to emphasize that point that we were really serious about that. The plan we have now, if we pull it off the way we want to, we're going to double the content and add a completely new narrative arc, and explore that world a bit further."

The result? Well, Ridiculous Fishing got real big, real fast. Ninja Fishing did okay as well, but Ismail's game has the kind of cachet that only comes with a tightly developed game and a loyal fanbase. Built largely off of his promise to refrain from in-app purchases and his passion for his customers, the whole thing exploded on iOS once it was released.

"Then what happened, that bubble just exploded. Elijah Wood played Ridiculous Fishing and tweeted about it. That's mind-blowing. That's not something that happens. We didn't expect it to be this big - we hoped it would be this size. We really hoped this would be the definitive statement about creativity will always win, because obviously the whole cloning background is still there for us, right?

"We still want to make this statement that Ninja Fishing did well, but Ridiculous Fishing wins because it was the better game. Better games win. That's what we hoped people would get out of it, and I think they did."

A ton of downloads and one Apple design award later, Ismail serves as the perfect example of what the combination of fan loyalty and well-designed products mean in the war against game cloners. Instead of focusing on being angry and going the legal route, Ismail won because his game is better. Something to which the rest of the developer community should probably be paying attention.

from the plausible-deniability dept

A bunch of folks, including James Allworth himself, sent over James Allworth's excellent post at HBR entitled How Corruption Is Strangling U.S. Innovation. If you're a frequent Techdirt reader, there is little new here, though much you'll likely agree with. It details how many legacy companies use questionable regulations to hinder disruptive upstarts who are challenging their businesses via unique and innovative means. It covers a bunch of different fields or situations where this is seen: autodealers going after Tesla for daring to sell cars direct, perpetual copyright term extension that appears to be much more a function of the age of Mickey Mouse than promoting the progress, how companies like Uber and Airbnb have had to deal with a bundle of local regulations on taxis and hotels, and how Comcast doesn't count its own video content towards your download cap, but Netflix's traffic does count.

It's a great article, but the thing that struck me about it is how it would be possible for people to explain away the corruption in each case as having a legitimate basis. That's what's really pernicious here. Allworth calls out Larry Lessig's book, Republic, Lost which often tries to drive this point home by calling it "soft corruption." That is, we're generally not talking about overt corruption, the kind where someone is handing briefcases full of cash over to politicians. It's much more subtle. What you get are legacy companies who fear disruption -- and they are able to make the case that the "disruption" should be illegal because it's scary to the incumbent. That is, "we must shut down this new innovation x, because it will destroy industry y, and industry y is important to America because of all the jobs it creates!" Or, it's "we need to carefully regulate industry z, because if we don't they'll take advantage of customers!"

And, thus, there are legitimate-sounding reasons for these kinds of regulations, and supporters of them always hit back on the corruption charges, claiming that "of course, it's not corruption -- politicians are just protecting jobs / children / etc."

There's a myth out there that businesses hate regulations. That's only partially true, and it's only true in limited cases. In many industries -- especially highly regulated ones -- the incumbents often love regulations because (a) they have enough power to control the regulations, (b) they know their way around those regulations better than anyone else, (c) those regulations quite frequently limit competition and (d) those regulations quite frequently effectively block out any form of disruptive innovation by stopping it entirely.

Perhaps what this is all about isn't properly conveyed by just calling it "corruption," or even "soft corruption." I think it's better described as corruption laundering. It is corruption, but it's done through this regulatory framework to make it look, sound and (in some cases) feel perfectly legit to many people, making it much easier to keep those regulations in place. The corruption is "cleaned" of its dirty connotations because it can be wrapped in a cloth (though bogus) of "protecting jobs" or "protecting your safety." It is corruption, but the truly nefarious part is that the corruption is done in such a way that there is plausible deniability over whether or not it is truly corrupt. And that's what makes it so difficult to root out this form of corruption. It's all been white-washed in a way to have a plausible explanation, even as the pace of important innovation suffers drastically.

from the blatant-copying dept

We often hear from people that without "legal protections" what could they possibly do to stop others from copying them? Of course, "copying" can be loosely defined, and there are times when it's just multiple people coming up with the same basic idea at the same time, and in those cases it seems only fair to just let people compete. But what about a situation of incredibly obvious, blatant copying? Do you need laws? Or can social norms cover the situation? It seems that one small company facing that situation has decided to take the high road and not resort to legal tactics, but instead use social shaming in just such a situation where the copying isn't only obvious, but egregious.

For reasons that I don't fully understand, one of the most popular categories of products that have been successful on Kickstarter is high quality metallic pens. There are tons. But one of the first really, really successful ones was Pen Type-A, a minimal stainless steel case for the popular Hi-Tec-C pens, created by CW&T. Among the distinct features of the pen was the rectangular stainless steel case with a ruler on the side that it came in. The Kickstarter project raised $281,990 -- a bit more than the $2,500 they shot for.

What happened next is covered in a detailed and well-documented-with-images explanation from Notcot. Needing a good manufacturing partner to handle the much larger than expected orders, CW&T partnered with a guy named Allen Arseneau, a Stanford MBA, who was representing JOIGA, a company that claimed to provide manufacturing capabilities in China. Allen and his partner, Diana Hudak, started helping CW&T, and CW&T even mentioned Allen and Diana in some of their updates to Kickstarter backers -- and showed the two of them in some of the photos they posted. Many of those updates highlighted that CW&T were working hard to fulfill all their orders, but that they weren't coming quite fast enough.

And then... earlier this week, popular site Fab.com announced a sale on something called the Torr Classic... a pen that looks remarkably like the Pen Type-A. Remarkably.

Lots of people started wondering if it was the same pen, and even asked CW&T, who were taken by surprise by the whole thing. When they looked at Torr Pens' website... they noticed that it wasn't just the pens that looked familiar. The "CEO & COO" of the company... were the very same Allen and Diana who had recently been working right besides CW&T folks to get the pens ready. Back to Notcot for the illustrated version:

Yup, the same folks who had supposedly been in charge of helping them get their own pens, and who had been working with them to ship the pens:

Over at the Notcot link there are a lot more photos of Allen helping out with the pens. And it's clearly the same guy whose face is plastered all over the Torr pens site, including in a horrifically done James Bond parody video "commercial" for the pens.

Now, for CW&T, this is clearly a pretty horrible situation. The "partner" that they were working with to help them manufacture the pens that everyone had bought had apparently started his own company to make nearly identical pens... and did this while still waiting for the full order of original pens to come in. CW&T responded by just telling the world what had happened:

In response, many Pen Type-A supporters quickly came out in support of CW&T and against Torr Pens. Fab.com pulled down their sale, and other sites started to pick up on the story. I don't know if CW&T have any legal recourse, or if they should even bother, but they realized that just by talking about the situation with the large group of fans they had connected with, they could have an effective response.

Oh, and they've also found a new manufacturing partner, here in the US:

Stories like this are certainly not a fun situation for CW&T, but it seems like their time going forward will probably be well spent continuing to make awesome products and connecting with fans who want them. Who knows what happens to Torr Pens and its "execs" but the story behind them is now out and I can't imagine they'll be able to create the same sort of love and appreciation for their products from fans as CW&T has done.

from the important-question dept

With the Apple/Samsung case finishing up, James Allworth, over at HBR, has an excellent post wondering why it matters if one company copies from another? A few years ago, we wrote about a book that pointed out that copying and then innovating on the copies is a perfectly reasonable and important business strategy. Allworth points to a new book (one I've been looking forward to for a while) by Chris Sprigman and Kal Raustiala (who we've quoted numerous times) called The Knockoff Economy: How Imitation Sparks Innovation.

He then takes the lessons of that book and applies it to the Apple/Samsung fight, noting that even if we assume they were imitating each other, that seems to have only encouraged further innovation, not less:

If you go back to the mid-1990s, there was their famous "look and feel" lawsuit against Microsoft. Apple's case there was eerily similar to the one they're running today: "we innovated in creating the graphical user interface; Microsoft copied us; if our competitors simply copy us, it's impossible for us to keep innovating." Apple ended up losing the case.

But it's what happened next that's really fascinating.

Apple didn't stop innovating at all. Instead: they came out with the iMac. Then OS X ("Redmond, start your photocopiers"). Then the iPod. Then the iPhone. And now, most recently, the iPad. Given the underlying reason that Apple has been bringing these cases to court was to enable them to continue to innovate, it's hard not to ask: if copying stops innovation, why didn't Apple stop innovating last time they were copied? Being copied didn't stop or slow their ability to innovate at all. If anything, it only seemed to accelerate it. Apple wasn't able to rest on its laurels; to return to profitability, and to take the mantle they hold today of one of the technology industry's largest companies, they had to innovate as fast as they could.

It's the same story we've been explaining for years. History and tons of studies have shown over and over and over again that competition drives innovation, because innovation is an ongoing process. Thus, when others can copy you, that actually accelerates innovation by giving the original incentives to stay ahead in the marketplace, and develop the next great thing. Research has also shown that it's not as easy as you think to "just copy" because you only see the superficial aspects to copy, rather than having the deeper understanding of what works and what doesn't that a market leader often gains.

In fact, when you understand that, you realize that patents can actually slow down innovation by letting a company rest on its laurels, and not have to continue to rapidly innovate. Other companies can't build on what they did first, and so they don't have the same incentives to continue to advance the market forward. And the Apple/Samsung fight in the market appears to support that.

If Apple ends up winning this case against Samsung — and either stops Samsung from releasing their phones and tablets to the market, or charges them a hefty license fee to do so — does anyone really believe that the market will suddenly become more innovative, or that devices will suddenly become more affordable? Similarly, if Samsung wins, do you really believe that Apple will suddenly slow its aggressive development of the iPhone and iPad? It's certainly not what happened last time they lost one of these cases.

Now, if you're with me so far, then I don't think it's a leap to suggest that having these companies duke it out in court over "who might have copied who" is counterproductive. All these lawsuits flying around suggest that everyone is already copying each other, anyway. A better solution? Let's have these companies solely focused on duking it out in the marketplace — where consumers, not courtrooms, make the decisions about innovation. In such a world, the best defense against copying isn't lawsuits, but rather, to innovate at such a rate that your competition can't copy you fast enough. That, to me, sounds like an ideal situation not just for consumers — but for the real innovators, too.